the rise of the technical VC

Silicon Valley’s first big bang of innovation occurred in 1957, when eight engineers left Shockley Transistor to form FairChild Semiconductor.  Back then, the idea of engineers being entrusted as founders of a business was heretical.  Forty-one firms were asked to invest, but “none of them were interested”, according to Arthur Rock.

The idea that engineers without MBAs can be successful founders has changed, but what about engineers acting as investors?  In my experience, the majority of investment professionals on Sand Hill road are still non-technical.

But that is changing, in two ways.  

First, several young prominent venture capitalists who have technical degrees are rising to the top of their profession.  Folks such as Kevin Efrusy (MSEE and BSEE from Stanford) and Jeremy Levine (CS degree from Duke) are ranked #9 and #10, respectively, on this year’s Midas List of top investors.  And at #1 this year is Jim Breyer, who earned a CS degree from Stanford, and having just turned 50 is still youthful by VC standards.

Secondly, as technical founders have made their fortunes, many of them have joined the investing class.  Marc Andreessen and Reid Hoffman, two successful technical founders turned investors, were the second and third top investors in 2012.

And the Midas List doesn’t cover the funding arena where the influence of technical founders is greatest: angel investing.  Many of the world’s most successful non-professional investors – Jeff Bezos, Max Levchin, Andy Bechtolsheim, Paul Graham, Bill Joy, and Marc Benioff – have, with their spare change and spare time, outperformed entire funds.

Silicon Valley’s venture capital community is undergoing the same “revenge of the nerds” phenomenon that its businesses underwent in the 1960s and 70s.  Technical founders are launching companies, earning returns, and then spotting new start-ups to invest in – increasingly without needing surrogates carrying MBAs.

Or perhaps more accurately, whereas the technical class was previously seen as serving the business class, now it is the business class that serves the technical class.  Mark Zuckerberg’s having a controlling share of Facebook is testament to this new reality.

The rise of the technical VC is part of a larger macro-trend that Marc Andreessen cogently captured in five words: software is eating the world.  

One vertical after another – from media, travel, and (soon I hope) health care and education – is being transformed by information technology.  Those who conceive, develop, and understand software are the new masters of the universe.  And everyone else – lawyers, bankers, janitors – are their servants.

CEOs and VCs are learning to code not because their curiosity inspires it, but because their careers depend on it.

Published by Michael Driscoll

Founder @RillData. Previously @Metamarkets. Investor @DCVC. Lapsed computational biologist.

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